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By Jason Stipp | 01-25-2010 05:24 AM

Buy, Hold, and Fold

Legg Mason ClearBridge Appreciation's Scott Glasser and Michael Kagan on the factors that govern the fund's buy, sell, and hold decisions.

Jason Stipp: I'm Jason Stipp with Morningstar. Legg Mason ClearBridge Appreciation Fund is a 4-star, large-blend fund with a 40-year history. We recently sat down with management, including Scott Glasser, a 14-year veteran of the fund, and Michael Kagan, to talk about how they managed through the downturn and where they're seeing opportunity today.

Stipp: Your fund, Legg Mason ClearBridge Appreciation, follows a buy-and-hold strategy and seeks high-quality names. After the market's recent downturn, many now claim that the concept of "buy and hold" is dead. What do you think of that assertation? 

Scott Glasser: Well see, I'm going to change the definition of that. I would say that this is not a buy-and-hold fund. Traditionally it's run a turnover ratio between 30 and 50 percent, which means we're keeping stocks, on average, two to three years. There are certain stocks, like cyclical stocks, that you buy with the intention of selling at some point in the future.

And we do that with cyclical stocks. We know why we buy it and when that valuation is realized or when there's a catalyst that realizes the valuation, then we'll sell the stocks.

There are certain stocks, like a Wal-Mart, like a Johnson & Johnson, that we feel very comfortable owning for long periods of time, because the whole idea of these type of stocks is consistency over time. Now sometimes their business models or their businesses will be in favor; sometimes they'll be out of favor and the stock price will go up and down and reflect that.

But these are core holdings, in our mind, that we want to own for our investors for longer periods of time. So, it's really a combination of these core holdings and then other holdings where you will see more turnover.

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